3. Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

most common form of organization

reduced legal liability for investors

lower taxes

harder to transfer ownership

4. Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year? (Round to the nearest percent.)

5. External financing needed: Jockey Company has total assets worth $4,417,665. At year-end it will have net income of $2,771,342 and pay out 60 percent as dividends. If the firm wants no external financing, what is the growth rate it can support?

7. Which of the following financial statements is concerned with the company at a point in time?

balance sheet

retained earnings statement

statement of cash flows

income statement

8. Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its dividend by $0.25 in each of the following three years. If their required rate of return if 14 percent, what is the present value of their dividends over the next four years?

$12.50

$11.63

$9.72

$13.50

9. An activity that has a direct cause-effect relationship with the resources consumed is a(n):

11. Tule Time Comics is considering a new show that will generate annual cash flows of $100,000 into the infinite future. If the initial outlay for such a production is $1,500,000 and the appropriate discount rate is 6 percent for the cash flows, then what is the profitability index for the project?

0.11

1.11

0.90

1.90

12. How firms estimate their cost of capital: The WACC for a firm is 13.00 percent. You know that the firm’s cost of debt capital is 10 percent and the cost of equity capital is 20% What proportion of the firm is financed with debt?

16.The group of users of accounting information charged with achieving the goals of the business is its:

investors

auditors

creditors

managers

17. Teakap, Inc. has current assets of $1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000 and retained earnings of $1,468,347. How much long-term debt does the firm have?

$803,010

$2,303,010

$1,844,022

$2,123,612

18. The cash conversion cycle?

begins when the firm invests cash to purchase the raw materials that would be used to produce the goods that the firm manufactures.

estimates how long it takes on average for the firm to collect its outstanding accounts receivables balance.

begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales.

19. Ajax Corp. is expecting the following cash flows - $79,000, $112,000, $164,000, $84,000, and $242,000 – over the next five years. If the company’s opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)

$480,906

$429,560

$414,322

$477,235

20. Jack Robbins is saving for a new car. He needs to have $21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar)

$26,454

$19,444

$22,680

$16,670

21. Which of the following presents a summary of changes in a firm’s balance sheet from the beginning of an accounting period to the end of that accounting period?

22. M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The company is currently financed with 75 percent equity and 25 percent debt. Your analysis tells you that the appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of the stock.

If Dynamo wishes to change its capital structure from 75 percent equity to 60 percent equity and use the debt proceeds to pay a special dividend to shareholders, how much debt should they use?

$225

$600

$375

$321

23. Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time:

that has been arranged from the highest number to the lowest number.

to determine the amount and/or percentage increase or decrease that has taken place.

24. Jayadev Athreya has started his first job. He will invest $5,000 at the end of each year for the next 45 years in a fund that will earn a return of 10 percent. How much will Jayadev have at the end of 45 years?

$2,667,904

$5,233,442

$1,745,600

$3,594,524

25. Turnbull Corp. had an EBIT of $247 million in the last fiscal year. Its depreciation and amortization expenses amounted to $84 million. The firm has 135 million shares outstanding and a share price of $12.80. A competing firm that is very similar to Turnbull has an enterprise value/EBITDA multiple of 5.40.

What is the enterprise value of Turnbull Corp.? Round to the nearest million dollars.

29. If a company’s weighted average cost of capital is less than the required return on equity, then the firm:

is financed with more than 50% debt

is perceived to be safe

partnership

has debt in its capital structure

30. Your firm has an equity multiplier of 2.47. What is the debt-to-equity ratio?

0

1.74

0.60

1.47

31. The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called:

master budgeting

static reporting

responsibility accounting

flexible accounting

32. Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 6.875 percent. What should the company’s bonds be priced at today? Assume annual coupon payments. (Round to the nearest dollar.)